Alltel Corp. is taking a slow and steady approach to integrating its recently acquired Western Wireless Corp. assets. The company is expected only to make minor changes through the end of this year and wait on major initiatives until next year.
Alltel has updated some of its rate plans to include roaming on Western Wireless’ network, but so far has not made any changes to Western Wireless’ offerings.
“I don’t think Alltel will move toward a full retail integration until after the holidays, but would not be surprised if they introduced some variation of the changes made to the Alltel rate plans for Western Wireless markets over the next couple of months,” said RBC Capital Markets telecommunications analyst Jonathan Atkin. “For the time being, however, the customer-facing aspects of the integration appear to be minimal, as even mobile-to-mobile calling features have not been enabled across the two networks and the Cellular One brand, phones and rate plans remain unchanged.”
Atkin added that unlike Cingular Wireless L.L.C.’s acquisition of AT&T Wireless Services Inc. last year and to a lesser extent Sprint Corp.’s recent purchase of Nextel Communications Inc., Alltel is not under significant competitive pressure to hasten changes for Western Wireless customers.
“The pressure is just not there as it is for Cingular and Sprint,” Atkin said.
Kevin Beebe, Alltel’s group president of operations, said the company plans to update rate plans across the Western Wireless properties prior to the fourth-quarter selling season to reflect Alltel’s larger footprint as well as work to include Alltel’s extensive roaming agreement with Verizon Wireless. Alltel also plans to stick with the Cellular One brand name already used by Western Wireless through the end of the year-with a possible Alltel sub-branding-before transitioning to the Alltel brand in early 2006.
Alltel also is not expected to make any drastic changes to its network operations in the near-term as there is very little overlap between Alltel’s and Western Wireless’ networks. Adding to the synergy, both carriers rely predominately on CDMA technology and the 850 MHz spectrum bands to serve their internal customers, and both use Qualcomm Inc.’s BREW platform to support their data offerings.
Although Cingular profited from using the same technology as AWS, Cingular still is in the midst of a major network realignment as there was significant overlap between their two networks. Sprint Nextel Corp. seems content on running two separate networks for the foreseeable future and has said that it plans to run Nextel’s iDEN network until at least 2010.
Beebe noted that Alltel was looking at making some improvements to Western Wireless’ network in select areas, but that it generally was pleased with the shape of the operations.
Alltel will have to shed some of Western Wireless’ cellular operations in Kansas, Nebraska and Arkansas as part of its acquisition, but will be able to keep Western Wireless’ operations in the 1.9 GHz spectrum band and nearly 700 towers that are used to support its GSM-based roaming services. Alltel was given four months to work out a deal to divest those Western Wireless Midwest assets. The most likely purchaser is Verizon Wireless, Alltel’s largest roaming partner.
Alltel has said it would like to work a market swap for the required divestitures, though UBS Warburg projected an out-right sale generating around $200 million was more likely.
Alltel also said that it was looking at expanding Western Wireless’ GSM roaming capabilities, which accounted for 38 percent of the total roaming minutes logged by the carrier during the first quarter of this year. Analysts noted that Cingular accounted for around 60 percent of Western Wireless’ roaming traffic through a pact with AWS that extends through the end of 2008.
Beebe said Alltel was looking at possibly using some of its 1.9 GHz spectrum, which it has been reluctant to use for its CDMA network to expand the GSM roaming capabilities, but only in markets where there was not currently a dominant GSM operator.
Despite the modest pace, Alltel said it expected to post between $50 million and $60 million in operating synergies next year, ramping up to between $70 million and $80 million in 2007, and nearing $90 million in 2008. Alltel also said it has informed around 140 Western Wireless employees in the Bellevue, Wash., area that they will lose their jobs, but has not announced any further job cuts.
Apart from the Western Wireless integration, Alltel’s management said the carrier planned to migrate approximately 200,000 customers it acquired from Cingular late last year in parts of Oklahoma, Texas, Kentucky, Connecticut and Mississippi from the GSM network to Alltel’s CDMA network in the near-term. Alltel noted the acquisition agreement with Cingular requires the GSM network to be shut down by the end of the year.
Alltel said it expects to book around $30 million in costs associated with the handset transition over the second half of this year and recently increased its capital-expenditure guidance for the year from $1.4 billion to $1.5 billion due to an increased need to build CDMA networks in its newly acquired markets.
